Federal Regulations are Not Making College More Expensive

A couple of weeks ago I had the opportunity to testify at a U.S. Senate Health, Education, Labor and Pensions committee hearing on innovations in higher education affordability. You can watch the video here. It was an interesting morning marred by a long discussion of an essentially bogus idea: that college keeps getting more expensive because of onerous federal regulations.

Senator Barbara Mikulski (D-MD) was the first to raise this notion, and she returned to it several times. She said it was an opportunity for bipartisan agreement on the committee given that Senator Lamar Alexander (R-TN) had cited it frequently during past debates. The idea, in a nutshell, is that the federal government imposes various regulatory burdens on colleges, and that colleges have to spend money to comply with these regulations, leaving them with no choice but to pass the costs on to students in the form of higher prices, and this is why higher education has been increasing in price at double the inflation rate or worse for the past three decades and student loan debt is topping $1 trillion and the middle class can’t afford a decent higher education for their kids and so on and so on.

Let’s be clear: This is wrong. It’s not true. It’s incorrect. Made up. Inconsistent with objective reality. Lacking any evidentiary foundation. Etc.

In part, that’s just common sense. Higher education is a mammoth, multi-hundred-billion dollar industry. If you look at what colleges themselves report they spend their money on, you’ll see the vast majority of the dollars going to things like “instruction,” “research,” “student services,” “building new buildings,” “maintaining buildings,” and so forth. Regulatory compliance costs are buried somewhere inside a much larger group of administrative expenditures that are themselves only a fraction of all college expenditures.

Indeed, not long ago the GAO issued a report on the cost to colleges of complying with federal regulations. The investigators found that, according to colleges, colleges’ “reporting burden is higher than estimated” by the U.S. Department of Education. Aha! But wait! The Department of Education estimated that it takes four-year universities about 40 hours of work to comply with IPEDS reporting requirements. The colleges themselves reported wildly disparate amounts, ranging from less than 40 hours to nearly 600, with a median of about 130 hours. 600 hours seems insanely high, and was probably the result of exaggeration or unusually inefficient compliance. But let’s pretend, for a moment, that it’s legit. 600 multiplied the U.S. Dep’t of ED estimate of $30 per hour in total staff and computer costs is…$18,000. The operating budget of a medium-sized regional public university–let’s say Chicago State, which was among those surveyed by the GAO–is $80 million, of which $18,000 is about 0.02%.

That’s the total cost, moreover. The “regulatory costs are forcing us to drive up tuition against our will” argument is about increased prices. A total cost of 0.02% can’t very well explain annual price increases of 5% – 8%. And that assumes that regulatory compliance costs are increasing at all. Are they? It’s true that the federal government has added reporting requirements over the years. But it’s also true that most of those requirements involve collecting and reporting information about things like graduation rates. Guess what’s gotten much, much cheaper and easier to do during the three decades during which college tuition has skyrocketed? Collecting and reporting information! In the 1970s, when college was cheap, colleges had to gather data and fill out numerous forms by hand and mail them to Washington, DC. Today, when college is expensive, a database administrator runs a program, hits a button, and, voila, data reported.

Given that the regulatory compliance cost explanation for rising college prices is utterly bogus, why does it keep getting cited by important people like members of the United States Senate? Because it’s a clever strategy employed by the higher education lobby to accomplish two selfish goals simultaneously.

First, colleges would rather not report information about themselves to the federal government. Given the choice between getting a bunch of free government money in exchange for (A) no information about how it was spent, or (B) some information about how it was spent, it makes sense to prefer (A). That’s understandable, just not acceptable.

Second, colleges hate being constantly yelled at about rising prices. They’re eager to deflect blame onto someone else, like nameless federal bureaucrats with their bean counting and burdensome red tape. So this strategy has the effect of diverting the conversation from the real causes of rising prices and undermining the case for more disclosure at the same time. It’s a smart ploy and more proof that the higher education lobby knows what it’s doing.

The worst thing about this whole conversation is that that there’s a much stronger argument to be made that rising college prices are a function of too little federal regulation, not too much. While states have direct regulatory authority over college prices (at least in the public sector) the feds don’t, and likely never will. The best way to bend the higher education cost curve down at the national level is to promote more competition in the market on value, defined as the ratio of quality to price. Prices we know about; quality not so much. Predictably, the higher education lobby fights every attempt to require more disclosure of information about quality, often citing alleged compliance costs (along with made-up student privacy arguments) as justification. Again, these people are professionals.